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Does Institutional Quality Affect Firm Performance? Insights from a Semiparametric Approach

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  • Bhaumik, Sumon K.

    () (University of Sheffield)

  • Dimova, Ralitza

    () (University of Manchester)

  • Kumbhakar, Subal C.

    () (Binghamton University, New York)

  • Sun, Kai

    () (Aston University)

Abstract

Using a novel modeling approach, and cross-country firm level data for the textiles industry, we examine the impact of institutional quality on firm performance. Our methodology allows us to estimate the marginal impact of institutional quality on productivity of each firm. Our results bring into question conventional wisdom about the desirable characteristics of market institutions, which is based on empirical evidence about the impact of institutional quality on the average firm. We demonstrate, for example, that once both the direct impact of a change in institutional quality on total factor productivity and the indirect impact through changes in efficiency of use of factor inputs are taken into account, an increase in labor market rigidity may have a positive impact on firm output, at least for some firms. We also demonstrate that there are significant intra-country variations in the marginal impact of institutional quality, such that the characteristics of "winners" and "losers" will have to be taken into account before policy is introduced to change institutional quality in any direction.

Suggested Citation

  • Bhaumik, Sumon K. & Dimova, Ralitza & Kumbhakar, Subal C. & Sun, Kai, 2012. "Does Institutional Quality Affect Firm Performance? Insights from a Semiparametric Approach," IZA Discussion Papers 6351, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6351
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    References listed on IDEAS

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    Cited by:

    1. Craig P. Aubuchon & Subhayu Bandyopadhyay & Sumon Bhaumik, 2012. "The extent and impact of outsourcing: evidence from Germany," Review, Federal Reserve Bank of St. Louis, issue July, pages 287-304.
    2. Benjamin David, 2014. "Contribution of ICT on Labor Market Polarization: an Evolutionary Approach," EconomiX Working Papers 2014-25, University of Paris Nanterre, EconomiX.
    3. Zara Liaqat & Jeffrey Nugent, 2015. "Under-provision of private training by MENA firms: what to Do about It?," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-29, December.
    4. Jose L. Tongzon & Sang-Yoon Lee, 2016. "Achieving an ASEAN single shipping market: shipping and logistics firms’ perspective," Maritime Policy & Management, Taylor & Francis Journals, vol. 43(4), pages 407-419, May.

    More about this item

    Keywords

    institutional quality; firm performance; marginal effect; textiles industry;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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